SACRAMENTO, Calif.: As insurance premiums skyrocket in California, landlords are increasingly passing those costs on to renters, potentially worsening the state’s housing crisis.
The sharp increase in insurance premiums is primarily due to the increased risk of wildfires and the rising costs of replacing damaged buildings. This affects single-family homeowners and multi-family landlords, who are now forced to find new insurers or turn to the more expensive FAIR Plan, California’s insurer of last resort.
Experts warn that these rising insurance costs could have a significant impact on the rental market in California, where nearly half the population rents their homes.
Josh Hoover, a Los Angeles-based insurance broker, noted that insurance companies’ stringent requirements have made it “almost impossible” to obtain insurance for large buildings.
“Even buildings from the ’80s are considered old now, which is ridiculous,” Hoover said. “Most providers want everything to have been updated in the last 30 years. They want a new roof, updated electrical, updated plumbing – they want you to have copper pipes.”
Landlords faced with drastic premium increases may have no choice but to raise rent, even though current state laws limit the amount of annual rent increases.
The situation is just as bad for smaller landlords. Uwe Karbenk, co-owner of a 33-unit apartment building in San Bernardino, had to accept a $28,000 increase in insurance premiums after Farmers canceled his policy.
With government measures to control rents, Karbenk and others like him feel squeezed by the combined pressures of rising costs and limited options to increase rents, leading some to consider withdrawing from the real estate market entirely.
Shanti Singh, legislative director of Tenants Together, expressed concern about the possibility that rent increases could disproportionately affect tenants, particularly given the increasing impacts of climate change. Singh stressed that tenants are often the least protected in such scenarios, as they are more likely to bear the financial brunt of rising costs without being able to influence the underlying factors.
“Tenants are the least entitled to compensation,” Singh said. “They always bear a disproportionate share of what they can afford.”
The ongoing wildfire threat further complicates the situation, as more properties fall into the risk category and become even more difficult to insure. This has raised concerns about long-term viability in some regions of California, where insurance and housing may become unaffordable or unavailable.
Small businesses that rent commercial space are also feeling the pinch, with landlords like John Reed in Oakhurst forced to pass on increased insurance costs to tenants. Reed, whose fire insurance costs nearly quintupled after his policy was canceled, said he is trying to mitigate the impact on his tenants by spreading the increases over a longer period of time.
California Insurance Commissioner Ricardo Lara has initiated reforms to address these underwriting challenges, yet the immediate future remains uncertain for many as they struggle with the dual pressures of rising costs and regulatory restrictions.
Ministry spokesman Michael Soller pointed out that Lara recently announced a deal with the FAIR Plan that creates a high-quality commercial insurance option.
“The reforms will have a positive impact on the availability of insurance,” said Soller.
